Sunday, September 13, 2015

Europe is under attack, an out and out invasion which if
control remedy is not applied soon the
difficult choice of using bloody hard
power or surrender is presented. I am not going to
talk about the morality involving the true inequality of income in the world,
which is the $5 a day folks in areas of $5,000 GDP per capita versus the $100
per day folks in areas of $40,000 GDP per capita. Personally I think there should be no
immigration or emigration controls and let people go where they wish and
replace borders with clear “rule of law” of that of the specific locales. But that is me and unlikely to be ever considered by the EU.

But the economic disparity which is right now only separated by
the distance between Turkey and Kos , with Kos easily seen from Turkey on a clear day, is
the cause of the current so called “refugee” crisis in Europe. While a relatively small amount of Syrians
fleeing for their lives from Assad, ISIS or the “good guys” moderates do exist,
they were merely the pathfinders and showed the way and how defenseless Europe
is to the migration. Almost all the current migrant waves are looking to better their lot economically - and why not.

If you can land in Europe, especially Greece, you are in
Europe for good.

There is not a father or mother in Africa and the entire
Middle East and even South Central Asia who if they could afford the transit would
not gather their children and strike out for Europe. And thus small babies are washed ashore in
Turkey. Whats more it is the absence of
law, of the state, which is allowing these parents to commit manslaughter on their
own family as once they return from a failed attempt the state they originate
from or the Turkish court system do not
prosecute them. No one is gathering
these people up at gunpoint and marching them into the sea, they are eagerly
finding smugglers and paying the costs freely.
These are not “human trafficers ” providing transit but they are committing man slaughter as well. But there is no court, no prosecuting
authority, and if their heart is black enough they will accept the commission.

How many potential economic migrants are there? If
it is accepted that this is an economic migration the number is incredible –
about 100 million or more and will reach 20 million to 30 million quickly if
nothing is done.

Why is Europe so vulnerable?

Because of Germany and the arrested development of the formation of the
United States of Europe. The migrant
crisis is showing a cross roads, where Europe allows Germany to continue to
dominate Europe and basically loot it with Germany quite willing to accept the
cost if the migrants to keep that power, or Germany is quickly subsumed into a
greater Europe, surrenders is hegemony and Europe starting with the Euro Zone
becomes a federation.

Germany was onboard as was all of Europe – but for the
Gaullist wing of France – prior to Germany reunification. The program was the Monnet Plan, where periodic
crisis would force Europe into further unity given that swaths of Europe were “straight
jacketed” into a series of treaties that insist on only one direction. The Monnet Plan would be allowed by the USA,
who still occupies Europe via NATO and via a remaining occupying force, as it
would “keep the Russians out and the
Germans down”. And Germany, at first too
feeble but to go along and then later with East Germany held as a hostage for
compliance, was a member participant of
the Monnet Plan. The creation of the
Euro and Maastricht start of the treaties to create trans-Europe institutions
such as the ECJ and the ECB all were headed, as agreed to by all – the “United
States of Europe”. The USE was to be a
sovereign country with not only all the
sovereign institutions such as the ECJ and the ECB but also an executive and
representative bi-cameral parliament.
That would lead to a USE hard power, a navy, army, air force and a coast
guard. But there were still crises to
come to add the executive and the representational parliament.
So a ad hoc system of bureaucracy, competencies, and the EC providing
the executive function. Later, as
complexity of finance developed, the
EuroGroup was created composed of the finance ministers. Power for this adhoc grouping was confederate
based on GDP size and to a lesser degree population. So power started to evolve
to Germany.

German re-unification before the launch of the Euro ended
the “hostage power” to keep Germany “down” and what’s more allowed Germany to
convert DM to the Euro had very advantageous rates. Then with the re-emergence of Gaullist in
France, Germany struck a deal with France to end the Monnet Plan and jointly “rule”
Europe. There was no need for hard power
as the USA provided that, and Germany kept the “guilt” over WW II to shred what
was their peace terms for their surrender – the Monnet Plan. Since the USA did the ugly tough stuff,
Germany and France, with the balance of power going more and more to Germany, could simply start to loot the rest of Europe
with the massively favorable internal terms of trade. Other nations similar to Germany like Netherlands
were cut into the deal.

What resulted was Germany achieved more economically with
the current system than they did in WW II.

But now reality bites.
The USA hard power is there to protect American interests, certainly not
to perform border duty or provide a coast guard. The true war refugees showed the desperate poor
how easy it was to get to Europe. And a
crisis now hits Europe unlike any of the others which cannot be handled with a
confederacy but requires a federation.
Germany is trying to keep the confederate hegemon and claiming a
sanctimonious high road is willing to accept up to 800,000 refugees but with
the small print being the German controlled EC will dispense the majority of
that around all of Europe. Not
considering how this “niceness” of Germany will double then triple then
quadruple the migrant flow and there by kill scores of three year olds,
mothers, children and fathers, it is obvious the German claims to “nice” is a
ruse. If it were real Germany would be
establishing beachside processing in Turkey or all launch points for the
migrants and then provide secure transportation to Germany. They of course are doing anything but that
rescue. Germany wants them to hit the
seas in puny blowup almost toy boats or scramble through Hungarian razor wire.

So this ruse by Germany won’t work, and in fact gas the
opposite effect and will induce a flood of ever greater migrants who now expect
a welcoming Germany. No doubt ISIS and al Quada operatives are in the flow already with more
to come. The debacle will become
apparent, perhaps with a massacre of thousands by close to fascist Hungarians,
or terrorist attack in Europe in support of ISIS, and thousands upon thousands
drowned.

Obama won’t take action and after the poor way Europe used
the USA in Libya and the lack of any real support against Assad and ISIS –
Obama will just let Europe hang on this.
The USA knows where the Monnet Plan
will take Europe, a slightly large populace just as prosperous as the
USA with a matching nuclear armed hard power.
So the USA will allow this crisis to carry on as Germany wants. The “Obama Doctrine” offered in Cairo by
Obama is showing its results – death and
chaos – and now Assad does look like a more useful and beneficial partner to
Europe and the USA. The Bush Doctrine
was the right plan and would have prevented all of this from occurring, and if
Obama had not surrendered Iraq to chaos and now ISIS, none of this would be
happening.

But this is Europe’s crisis now.

Germany will work on keeping power, they will try as hard as
they can to prevent Europe returning to the Monnet Plan, so many will die as
they do so until the slaughter is of
such a nature Germany relents. When that
happens, and it will be terrible in the process, Europe will be shaken to its
core. The current shredding of the
Schengen Convention will make the confederacy with German hegemony exposed for
the non-democratic construct that it truly is, an occupation of the rest of
Europe by Germany and their cronies. The
need for a functioning federal Europe will be obvious and the Europeans will
insist that it is democratic. Along the
way Greece and Italy will realize they can call Germany’s bluff and will do
what Germany should if it were sincere –
they will arrange safe transit and passage for hundreds of thousands form
Africa and the Middle East but then dispatch them to Germany for processing.

Europe will not take even another 100,000 migrants.

So the country of Europe will be formed, perhaps not being
called so but defined by its apparatus and institutions. First a coast guard will be formed to either
prevent the migration (as Australia is doing now) or to provide rescue and
security. But that will not slow the
flow so a trans-European marine force will go and occupy areas that the
migrants launch from or for areas like Turkey it will be a a police action in
coordination with the local government.
But in the end the only real remedy is to re-establish the state of Syria and other
areas so as they can provide their own policing and social services and stop the
migration. This will require a united
Europe common force – an army and to support the army an air force and navy.

A crisis that even the brilliant Monnet could not have
possibly foreseen may cause the final
step in the creation of the United States of Europe.

…. was in the minutes of the
July FOMC meeting, released Wednesday.
We feel this is a most telling statement and seemed to be shared by many
of the participants at the meeting.
While it was immediately thought by
the markets that the minutes showed a Fed that was still stubbornly “dovish”,
ready to wait for – well whenever, before ending the adherence to Zero Interest
Rate Policy (ZIRP), a growing group in the Federal Reserve is becoming impatient. The market is perceiving the Fed as enacting
a very poor over-acted financial “Hamlet” with “to be or not to be” replaced by
“to ZIRP or not to ZIRP”, except the phrase is heard only once in Hamlet, now
being repeated over and over and over……..

So the Goldilocks trade,
where the market perceives a long term period of ultimate liquidity as the US
economy shows greater and greater strength, is coming off, and the market is not waiting for the above
play to end but is arranging business as if rates were already normalized and
ZIRP in the review mirror.

This could leave the Fed with
a fierce tactical challenge for if the market has lost patience and gone on
without the Fed leadership, once the Fed does normalize they will find they
have to raise quicker and harsher than they are ponderously planning on
now. This means the current game plan
and stately controlled manner of the Fed is thrown out the window as the Fed
scrambles to regain “leadership”. Not
getting into what that means for rates but to note that rates will be higher
than they are now, it does make it a fait accompli that the risk and drama of sudden lurching acts by the Fed to regain that
leadership will end with greatly increased risk (volatility) in all assets.

We think this pricing of
anticipated greatly increased volatility
is what has been happening over the last week with the large drop in the
SP500. While most stress only one or two
factors (DIS earnings as content goes “over the top” bypassing the commercial
channels of ESPN or other commercial TV,
Walmart who showed they weren’t kidding when they said earlier this year
that they were raising wages (wage inflation), China continually deteriorating authoritarian
designed market and economic structure, and residual of Greece) which are valid but
not focused on the main event. The Fed
and what is starting to seem to be financial dithering, is at the heart of this
down trade.

Economic data continued to
show the very strong robust strength to the US economy with strong home sales,
real earnings and especially unemployment claims data which is showing such
strength it is off the grid in terms of comparison to any prior period. Yet
all survey data which is based on opinion or very small samples to
deduce very large populace continued to be lack luster such as the NY Federal
Reserve “Empire State” survey of business conditions or the “Business Leaders”
survey. The Fed’s dovish concern over
the economy is almost solely based upon the survey based input, and now they
are willfully ignoring the census based data.

SP500 was down 72 points from
last Friday’s close of 2091 trading at 2018 at the time of this writing. While Consumer Discretionary was given as the
leader, as in most large declines the losses were fairly evenly distributed with
only high dividend or utilities not trading down as much. Unlike previous down trades in equities, US
Treasurys did not trade up as much as other equity declines and the US Treasury
2 year is now at still recently high
levels of .65%, down 5 basis points (.05%) from the .70% level. When the market traded down for Greece, the
US Treasury 2 year traded down to a low of .50%. Our read is the US treasury 2 year is priced
anticipating near immediate end of ZIRP.

BBBBBBB,
after a brief drop in the weights immediately after Greece, has been maintaining
our highest cash weights throughout this downslide. This was not so much in anticipating a drop
in equity levels, but rather in anticipating the large increase in volatility
that has been occurring and will increase as markets reorganize given the end
of ZIRP. Our cash weights for our model
portfolio have been 22%. We do not see
value in fixed income and out fixed income is still short maturity corporates.
Equity sector weights are still financials, consumer discretion, and some
health and tech.

We are still waiting for the “fat
lady to sing” which will be the Federal Reserve normalization of rates, but
since we do not think this normalization will behave and act to the Fed’s
script, we will carefully assess and not re-deploy fully weighted into equity
until we think all the increased volatility has been priced. But it should be
kept always in the forefront that the reason that will force or prompt the
Federal Reserve rate rise is the ever increasing strong robust strength to the
US economy. This makes us very
constructive for the long run on US equity which will likely be the bell
ringing asset for the next decade, barring any exogenous foreign shocks.

Thursday, July 23, 2015

The writing was on the wall a long time ago for the claims data released this morning. Sorta cute folks are "discovering" claims data now when its key importance started around this time July 2012. Claims data then was the most important key input for Bernanke (along with how it was picked up in the new "spider graph" the Atlanta Fed started doing) such that he started the Fed towards a traditional tightening phase, ending QE and setting the stage for the end of ZIRP. He was cut off at the knees by the politicos like Bullard, Yellen, and English and the "true believers" at the Chicago, Minneapolis, and Boston Fed. So the end of QE became a "taper" and what I think was to be the first rise in Dec 2013. Was all inspired by claims. And in particular claims over the July auto refit week as 2012 was the first year many of the auto and auto parts plants did not shut down as auto sales started their surge towards 16MM annual sales rate.

While tech and finance will end the USA biz cycle - the biz cycle recovery is accomplished by autos and housing. This makes the July refit period of great importance in a recovery.

The claims data carried on after the 2012 refit surge, and as BLS calibrated the monthly surveys to the claims data, we had the early fall UER surge through 7% in UER that left Jack Welch sputtering (he was right, the data was being manipulated, just he had the sign wrong, it should have dropped all the way towards 6% then.

The babble of the power play, to wrestle the Fed from economic data carried on, deeply entrenched by the time of Bernanke retirement. I believe the BLS was coordinating with this group at the Fed to put a drag in improving the monthly data. BLS also had a huge problem as they capped UER at 10% when it should have gone on towards 12% or even 13%, so there were about 2 MM Labor Force reduction made in 2009 to 2010 that was being carried like a bad trade in the drawer. Pity that, as I think that was the main reason the Democrats lost Congress to the GOP midterm as the economy was already in solid shape but depicted by the Fed and others as still in dire shape. Greece Crisis I was also covering the huge US econ improvement as well as a completely contrived US budget crisis. Obama was now full throttle in one of the most sincere austerity movement of any POTUS prior and considering how little time had passed since the worst solvency crisis in a century, was a bizarre policy. This is still Obama's economic policy, just he is lightening up on the brakes.

So the end was with Bernanke stifled, Obama's austerity, Greece, the fogging of the monthly data by the BLS for whatever reason, and new GOP dominance of Congress, the massively improving status of the US econ and the labor market was missed.

This became even more apparent in 2014 as the 1stQ weather hit immediately threw cold water on the bulls and then the roar of 2nd Q with obvious significant inflation showing the Phillips Curve is still with us and is axiomatic. But then oil was crushed and the last phase of the "currency war" kicked in, especially German influence to drop the Euro towards parity with the dollar so they can take their mercantalist pillaging of Greece et al (there wasnt anymore to be had for Germany anyway as unemployment rose to high 20% in those countries), and the BLS kept the bad trade in the drawer, though they did manage to get 1MM or so of the "error" back into the labor force. This meant that after what appeared to be a flash in 2nd Q 2014, the view was the market returned to the secular stagnation weak labor market meme that was essential to keeping your macro job and for the Fed to maintain power. The Fed with the import price pressure and PPI pressure on CPI and PCE was able to keep the disinflation, low inflation thesis alive. This in turn kept Congress at bay and allowed the Fed to keep their extraordinary powers that were not even seen by most as they are now expressed in "macro-prudential" policy. So Yellen was able to deflect Congressional challenges for the Fed to maintain their massive new found power, which are most dangerously poised in FRAT, HR 5018, which is to force the Fed to return to their own defined "Taylor Rule. Later, in this year, John Taylor noted that the bill is always in the forefront of Yellen's mind when dealing with Congress.

So all through 2014, but for the "hiccup in 2nd Q" the weird political mixture that requires a bearish view on the USA econ, especially labor, was able to be maintained.

Then into 2015, a repeat of the 1st Q weather occurred, this time with the GDP of Boston being wiped out of all data for months, allowed this bearish momentum to continue.

Until now, now the obviousness of the claims data is showing how ludicrous the bear US econ story is, not just today - but if you had paid attention to the evolving claims data has been the case since 2012, as described above. This has not been the only data showing the extremely strong US econ since 2012. Auto sales, consumer credit, retail sales, tax receipts and now housing were also going at full throttle.

But the clearest depiction is from claims data. I have gone on quite a bit on the utility of claims data, just look at prior posts on this blog from 2012 onward. The latest post was last week. This is perhaps the best time in the year where claims data has most utility as it is the 2 weeks where autos and other manufacturers close down operations, lay off workers and do refits. This is the part of the US economy which has the most "Keynesian Multiple". I use only non seasonal data, as the worst of the crisis hit took place in Jan and July 2009 and Jan 2010. This was registered as mostly large "seasonals" which either was a deliberate attempt to keep claims data aligned with the capped at 10% UER. So the seasonal data, if you are seeking trends, is just about useless.

The more important data is in the continuing claims, but it is lagged one week behind initial claims so this AM it was for Week 28, while initial claims is at the end of the refit week Week 29. What initial claims shows it that there was almost no auto refit shutdowns this year, and what bears watching is if continuing claims close in on 2.1 MM and drop insured UER to 1.5%. But as you can see, similar auto strength is shown in 2012 to 2014 shut downs as well. The dichotomy between claims data and the monthly survey based employment is so egregious that this will force the Fed to give up on looking to employment as a factor to keep ZIRP. ZIRP should have ended when I think Bernanke wanted to in 2013, certainly it should have ended by 2014. Claims data is crystal on that. The size of how high Fed Funds will go in the first quarter after the end of ZIRP is indicative of how far out of whack monthly survey data is from claims data. When monthly data re-calibrates to claims, the UER will be in the low 4% area. The Fed Funds then will certainly "pop" well over 1% very quickly, if not over 2%, once this correction is applied. That is why claims data is not only of great utility, but essential at this point.

Thursday, July 16, 2015

The very strong fully recovered labor market is still evident (and has been so for over a year now), but this week, the 28th in the year, is the week that auto refits take place and auto and auto parts layoff their workforce for 2 weeks. But the non seasonally adjusted, here mapped out in colors, with the year in the x and the week in the y shows, shows - by scanning down the week 28 row since 1992 - that this auto refit is basically not occurring. This is shown by the dark brown color versus all other boxes being lighter brown or white (I cap the data at 400,000 or lower which provides a more nuanced color gradient.

This shows a very healthy labor market as well as strong durable goods sales (autos), and increase in durable goods inventories (again autos). This should add .2 to ,3 to 3rd Q GDP and shows momentum from 2nd Q GDP which suggests it may be a surprise on the upside and then readjusted upwards. 3rd Q GDP may very well top 3%.

Continuing Claims, those who have started drawing state unemployment insurance and are continuing claims shows the continued very strong robust labor status, but the continuing claims is lagged by one week to the initial claims which are concurrent. So next weeks continuing claims will be of interest to see if they match the above view on initial claims.

The above claims data coordinates well with the JOLTS data, but is completely out of whack with monthly employment data. Since claims data is an all encompassing census and not a sample based survey like the monthly employment, it is reasonable to consider claims data as more useful and to not see useful accuracy in the monthly data. This is why the BLS outlines that they will adjust and calibrate the monthly data to the accurate claims data, for whatever reason the BLS is not doing so in this business cycle while they have done so in every business cycle prior.

Wednesday, July 15, 2015

If you recall my thesis in 2011, I sketched Europe as a constitutional
crisis and not related to finance,
though most then saw Europe as a financial problem contained in units of
the separate EZ states. They still do –
everyone still does.

But I was right , and as usual for my forecasts, since they are usually dependent on a political read
rather than a micro-economic read, I have had better foresight. But I also
have a lack of timing as I am not very involved with the noise of the markets. By noise I mean the quarter to quarter
swings. I have found the important
market moves occur on a seven to ten year cycle based on a political
cycle (two terms for POTUS time usually).

So with the same qualified foresight I showed in 2011, I wish to present my current view on Europe.

I am confident I have “nailed” the current situation.

Basically, I hold the same view as I had in 2010. Europe is still a constitutional crisis and
has little if nothing to do with Greek debt.

Greece is immediately very important, but as most have
quickly deduced it is “only” a problem as the entire Greek debt is a bit under 3% of the Euro area. So Greece is only a tactical situation now
for most, with focus on the terms of the deal.
Greece ha d no choice but to surrender as Germany was ready to plunge
the country into some Lutheran hell of original sin, backed by the other
moralist Finland. This not good for the
Greeks, they will be beaten into submission and become a debt colony of
Germany. But is quickly being priced as
a small factor for US and world markets in general. At the time of this writing the SP500 was
traded up 70 points to 2107, a large move, since Weds lows last week.

The more useful long term analysis would be at first curiosity
as to why Germany was so adamant and so belligerent for what is really a small problem. How they deployed the extra-EU Treaties institution to do the job – the Eurogroup – so as to avoid conflict with and control France and Italy. Why did Germany find itself at odds with
France. Why the debate was contained for
5 months in the Eurogroup with what
Yanis Varoufakis called a plot.
- so that in the end Greece faced a pre-planned outcome imposed upon them. The above hyper link to Varoufakis interview is a must read. When reading Varoufakis it should be noted
that he has the historical read of a Marxist – ie brilliant. [ It is always best
to use a Marxist to tell you where you are and how you got there, but then drop
him and replace him with a Kissinger or a Fukuyama or a Keegan for forward for
policy planning then a Nixon for implementation.]

Via answering the above questions the true nature of the
European crisis becomes clear.

Germany is facing, and
will experience, if nothing is done,
default.

Germany has built its own demise in typical Germanic
fashion, only it was via trade locked into the de facto gold standard of the Euro
(for all those in the EZ) , and not armies that have built the " Fourth Reich" rise and will assure the fall of Germany in the end.

Trade economics are relatively straight forward, one of the
first economics defined as far back as Hobson and Ricardo. Trade economics uses a ledger, a Pacioli double entry accounting
approach. In international trade if one nation sells
something to another, the seller needs to settle “money on the
barrel”. If the two trading counterparty
nations are in balance, with no chronic competitive imbalance in the terms of
trade, then the trade processing ends, and after short term trade financing is
paid down, both countries current account is unchanged. All common sense and easily described by
Ricardo.

But if one country enters into trade with another that has chronic competitive advantages in terms
of trade, usually because of large
constant better factors of production like
labor costs and more often than not a “rigged” currency, there are no comparative advantages. The
country with the chronic competitive advantage not only sets the price, sells
the good with one-way trading, but also finances the trade. If the rigged currency levels can be maintained, as well as the advantages in a
lower cost of labor, with large constant
savings rate, it is inevitable that the
exporting country not only exports the trade goods, but will inevitably finance the trade flow via debt from their larger
savings rate, and has ever increasing
positive current account as well as a chronic trade surplus for the exporter
and chronic trade deficit for the importer as well as mounting current account
deficit financed by ever accumulating debt balance to the exporter. Hobson described this centuries ago and
provided its name: “mercantilism”.

The mercantalist colonial empire requires hard power, or
some means of coercion and enforcement to keep the importer in thrall. Or the
debt simply defaults sooner or later.

If the mercantalist does not have the ability to enforce or coerce the
importer into line, then what is a benefit and empowerment turns into a cancer and
will force an overturn of the mercantilist in a sudden cusp movement – a very
bad week for the exporter.

A good rule of thumb is that without enforcement and ability
to maintain a long term colonialization
of the importer, the accumulated trade surplus in the accumulated current
account will be lost or be devalued an amount approximately equal to whatever was the trade advantage. Then as the importer balks, and refuses servicing and repayment of debt, or simply cannot do so as the only rebalancing
available is the raising of competiveness via mass unemployment, weakens the economy such that the debt cannot be serviced . Or the importer finds better terms away. Giving the precedent that this cycle almost
always occurs, it would be better for the exporter to look forward and manage the debtor, always
keeping the importer in good health, and certainly never let the importer get
to the point where there is nothing to lose and such that they revolt and default. This is accomplished by
equalization payments, or transfer payments or mass rebalancing like the Marshall
Plan of which the largest recipient was Germany itself.

It is not clear if Germany knows they are in this situation with
Greece, they may indeed believe in the clap-trap of Schaeuble. What made Germany’s mercantilist status is
not readily apparent and by being so may even have fooled Germany. That Germany believes Greece arrived at their
current status by choice. Even the great Paul Krugman who one his Nobel Prize in trade economics, misses that the Greek debt crisis is a classic mercantalist trade imbalance problem.

Germany, Krugman and others may not even be aware of the German policy and factors for intra-EZ trade for the last
15 years, as it was cloaked under the
Euro.

German labor reforms
so as to reunite with East Germany, the
cheapening of the DM value by absorbing the Ost Mark at clearly off the market rates for conversion into DM, and
then the entry into the Euro at a very cheap 2 DM per Euro conversion – all these
factors set up German to pillage almost all their EZ partners trade account.

Germany insisted on no transfer or equalization payments,
and had Karlsruhe enshrine that into the German Constitution. These German terms of trade, and the inability
of any EZ trade deficit partner to
rebalance to Germany but for unemployment, and then Germany – up until 2010 –
is the cause of the crisis. In the USA
if one state has such adverse pressure,
folks pack up the Budget one-way rental truck and move to the other area in the
USA which is doing better, as well as about 20% of the USA budget going to
equalization and transfer payments. In
Europe there is no mass internal migration and there is now no currency, and until
2010 one could add to the debt from Germany to finance the next years trade
imbalance, so massive imbalances have built with Germany since the Euro was
launched and especially since Greece joined the Euro. The impact on the comparative GDP per capita:

And the rampage and damage that Germany is imposing on the
EZ in comparative unemployment rate:

Given that the only way rebalance is to force unemployment, this ends in a perverse cycle as the country gets weaker and unlikely to repay the debt owed.

The level of German trade surplus growth is massive, and
until recently most of that on exports to fellow EZ members. The Germans, by insisting that there are no transfer
or equalization payments, and the confederate nature of the Deutsche Bundesbanke
and to a lesser degree the Bank of
France and the Bank of England, have the internal payment system of Europe to “firewall”
the credit of each of the EZ country’s central bank . As debits and payments are made in the
interbank system, they move to the member country’s central bank and then to
the ECB balance sheet for the credit or debit of the respective country’s
central bank account. The US has a similar system between the regional Federal
Reserve Bank, but the accounts don’t mount as imbalances develop between the
region s, but are cleared each day. In
the EZ system they are not cleared but accumulate. The system is called TARGET2. By monitoring the TARGET2 accumulated
balances at the ECB for each EZ country, an explicit and dynamic picture of the
massive intra-EZ trade imbalances are obvious.

The changes in TARGET2 balances over the years compared to
the change in the current account balances, showing the TARGET2 accumulation
and change is from trade. Germany is the
obvious standout and the accumulated surplus is more or less offset by the
changes in the other member EZ deficits:

The levels of the TARGET2 accounts then is a quick robust
way to track they accumulated debt financing for the trade, as all deficit
trade balance countries must finance by borrowing.

The deficit levels, or accumulated payments owed to Germany
and to a lesser degree Luxembourg (tax shelters for Dutch, German and French
companies for the most part) , when considered as an accurate measurement of
the growing trade balance in the EZ becomes telling. First, Greece is a very small part of this “debt”,
so why the vigorous hammering by Germany and the attempt to remove Greece from
the Euro. It is because Greece isn’t the
problem Germany faces. The real problem
is if all the trade deficit financing becomes one problem – if Italy is
packaged in with Spain. But especially
Spain, as Spain and Italy have not accepted the first bailout as Greece did in
2012, and their debt balances are not with a sovereign Germany alongside IMF
financing, but are still with German financial institutions either directly or
through Spanish and Italian banks. Then
if the unemployment adjustments Germany has imposed upon Spain and to a lesser degree
Italy are added with the now radicalized Greek unemployment a mass of people
appear on the scene that cannot be segmented into individual countries and
overpowered as Germany is doing now. So
Germany is smashing Greece now so as to attempt to prevent that aggregation of
trade debt financing.

All of this could have been avoided if the Jean Monnet plan
for the evolution towards a “United States of Europe” had occurred, instead of
being interrupted post-Kohl. It is
cloudy as to why, but it seems all roads lead to Schroeder and the
reunification of Germany has swung focus of Germany away from the EU and towards
East Germany, but for the annoying Poles.
Germany is creeping towards association with Russia, whatever the
reason.

When I presented this to DC folks in 2011, was the only one
of my group who saw that the crisis from 2010 onwards was solely
constitutional. All of my group dismissed
my thoughts and went onwards into credit, flows, debt and financing. What surprised me at the time, and I did not
understand the importance, was the staff we presented to all agreed with
my views with an almost casual “off course”, all saw it as a political and constitutional
problem. Then they asked our group our
views on when unemployment adjustment would cause civil strife and
violence. All of the NYers were
surprised at the question and of course had no expertise in answering, so we
dropped that question and drove on. I
know realize that was the main point, that we were there not so much to present
new information, but to confirm existing views. That the unsaid view of the USA was to not
encourage or insist on a constitutional remedy to Europe, but to monitor where
the boundary was for mas civil unrest and only step in at that point. That is suited the USA to keep Europe a weak
confederacy under a short term grasping Germany. But, since I had not realized the above until
recently, I can assume that the audience was not watching the Hobson-Ricardo
nature if the building trade deficit financing but were accepting the
moralistic character view of the Greeks making these choices and self imposing
their own problem, along with the rest of the periphery.

But the ability to ride that edge and manage Europe towards
a somewhat chaotic force muddling through are over, unless the USA desires the
default of not Greece, but of Germany and possibly France as well. NATO stuff.

It is useful to very briefly reconsider the Ricardo-Hobson
nature of the current crisis. It is not
due to specific national traits to work and savings of tax scoff law, it is the
Pacioli immutable reality that in a closed system like that the EZ became, without
any adjustments of that imbalance available, the country with high savings ,low
cost of labor and high productivity will “invest” in low saving if not deficit
countries. If the cost of the trade
goods continues to be inefficient, the trade balances will result with the high
saving exporter ever increasing the debt
financing. They will keep doing this
until the unemployment rate, in a democracy, results in an economy that can
never repay the debt and will refuse to service it. The adjustment via unemployment is insufficient
to rebalance so the debt is violently repriced to finish the rebalancing
required via default.

Looking at the TARGET2
balances, and considering past sovereign default, 60% of the TARGET2
level will be how much Germany will face in default – about 400 billion. On a per GDP level, this is about double what
the USA experienced in the 2008 mortgage default solvency crisis.

Germany will be ruined if nothing is done.

Greece is not the problem.
The problem will be and is now Germany.

What can be done also provides prescience.

When a sovereign goes into default they either become
excluded from the globalized financial system or they have a restructuring from
the IMF or the US hegemon. The amount of
400 billion for only Germany alongside with the equal amount required for the rest of the EZ (remember the
books will balance) is beyond the IMF. And
this will happen quickly, especially if
Germany keeps fighting this outcome. And
the USA will not provide a bond swap for that amount either, as the 700 billion
ARRA 09 funding is still being dealt with along with the cost of security as
ISIL and other problems flair. When
this happens Putin will likely take full advantage of the situation and will
encourage many areas “hot spots” as well as continue with their own goals in
the Ukraine and well as Latvia. Russia
will sue this situation to come and “aid” Germany, as well as Greece. It would challenge the continuation of NATO.

What Germany will do, if this unfolds, will seek close
cooperation of all the EZ and build the entity which they could swap their debt
with and remedy the crisis. The only
entity to do that would be a “United States of Europe” where a Eurobond is
swapped for all the defaulting sovereign debt.
That financing and bond issuance would require a federal financial
structure from taxation to setting policy to paying all commonwealth enterprise. As Hamilton did with the US retirement of the
colonies debt with newly issued US Treasurys in 1789, it will launch the United
States apparatus. Unless all of the EZ
wished to grant a dictatorial authority
to Germany to run this new country and manage debt and taxation, all the usual
federal democratic apparatus will appear.
This would be easy to make as all of the EZ would be facing the problems
Greece is facing now, and quickly the corporatist German hegemony partnership
can be swapped into a federal structure.
The ECJ would be activated, as would the population defined European parliament. The Euro Commission becomes the departmental bureaucracy
which would be under an executive that is directly elected that replaces the
Euro Council. To avoid the problems of a
confederacy rather than a federation, the Euro Council would either convert to
an upper chamber based upon state, and the first ministers return home as
governors.

This is what will happen and is the only way I can see
Europe, and especially Germany being ruined.
The question as to whether or not the occupation of Europe by the USA
ends or begins a wind down, but NATO would continue as Germany is turned away
from Russia and back to being one amongst equals in Europe, and a European
common force quickly becomes a full equal to the USA. Which is the end results which I think
motivated the Agency forward looking planners wished to forestall.

I am constantly increasing the regard I have for Jean Monnet
as the above is perhaps the only way the United States of Europe is created. I will go further, I think this will create
and finish the Jean Monnet plan, reviving it from the ashes of the Schroeder
and German re-unification destruction of
the Monnet plan. I think it is now time
the USA swing back to supporting and encouraging the creation of the United
States of Europe. Once this is achieved
all the debt crisis in Europe will disappear as quickly as the debt crisis in
the newly created United States of America with Hamilton’s “Assumption of the
Debt” in 1789.

Then over a suitable time the USA must withdraw from Europe,
allow a European ‘Monroe Doctrine” develop, and accept from time to time a United States
of Europe will have serious differences with the United States. But that outcome, even with the risk of a
bipolar world as the United States of Europe would be every bit the equal in
power to the USA, would be a more secure world for the United States in the
long run, stop Putin’s vain-glorious nostalgia, and balance the load to contain
China. In the long wrong a united
federal republic in Europe would lead to a secure and stable world for
democracy and would be well down to the road of the “end of history”. Fukuyama was right.

Sunday, July 5, 2015

Immediately, Greece must shift the focus from so called, and
insultingly called, “Grexit” to defining the forum and the authority of the
forum to discuss the Greece debt. The
debt is by common sense never to be paid back and is in fact a fiction, it is a
trade imbalance and then an emergency intervention as the world entered into
the ‘Great Recession”. Much of it if not
most will be forgiven – call it by any name one wishes. But the forum to date is clearly inadequate
for the negotiating of this so called debt.
A forum must be found or designed that has legitimate authority to
define review and then deliberate and then end this crisis.

Greece upon itself is similar to Rhode Island in the 1780s for
the USA, especially the first Secretary of the Treasury, Alexander
Hamilton. It was almost an island like Cyprus, of
smugglers, tax avoiders, and bankruptcy schemes. But Rhode Island went down in the end being
integral in empowering Hamilton and showing the nation the need for centralized
treasury and more importantly centralized federal oversight and policing
(creating the US Coast Guard , for one).
So Rhode Island characters were in the end more useful to the nation
than the most stalwart rich North Carolina planter. And it should not be lost, that to build the USA, the first step was Hamilton forgot all the state debt and aggregated it into US Treasury debt.

Greece must swing the focus on federalism, yes they have serious
problems, and those problems overwhelm the existing civic power of Greece. A EZ federal tax authority is required. Greece debt must be swapped, just as
Argentinian and other countries debt was wrapped around US Treasury corpus in
the late 1980s by another Secretary of the Treasury, James Brady. And then duties Greece now has for policing
the common border of the EZ, especially against the most serious problem of
refugees, must be delegated to a all EZ naval and para-military force. The same with Greece obligation to NATO. In short, it is impossible for Greece to do
its duty to the EU and to NATO without federal institutions where it is only a
small part of just as Arkansas implicit share of the US Navy or the IRS.

Greece must force the discussion to rejuvenation and repair
of the system which was and is still completely flawed, and to assume an equitable duty in
that repair and then ongoing capability.

To do so that requires a European federal republic, while Europe seems
strangely complicit in allowing Germany assume the title of running the entire
European Treasury, I think they will realize the advantage in that when the Greek remedy and then
ongoing prosperity requires a para-military if not military capability and
Europe wide policing, starting with taxation.

Europe has been avoiding this requirement, burying their
heads in sand and letting the USA provide the hard power, so that they
can carry on eating at either the corporatist or German trough like pigs. Even those countries most damaged by German
intra-EZ mercantilism, support Germany “super votes” and allow them to run the
EC – I guess because it provides sinecures (board membership on GAZPPROM) and
fine meals Comme Chez Soi in Brussels.
Or their leading industries get to go along like volunteer financial shock troops alongside German business as
they loot and conquer.

But a popular and indisputable direct democracy, not just of
the Marxist Syriza, but a super majority of all Greeks, has shown the falsehood
to all of this by voting as a united people OXI.

Greece must now swing hard to defining the platform, even
ignoring the debt itself for the time being.

Greece must do the following:

1) Organize a pan-EZ block of all people with the
same problem of German intra-EZ mercantilism but with no mechanism to re-balance
the results of mercantilism – no power to force terms, no transfer payments,
and most importantly no currency to devalue to regain competitive terms a la
Ricardo. The only re-balancing provided
to regain competitive export ability, which Germany insists upon, is mass shock
unemployment . Formal alliance with
Podemos, is required and Rojay must go.
It is not out fo the question to split the EC super votes and bring
Hollande in the alliance as well as Renzi – if not that go to the traditional left
of Italy and France.

2) Immediately sue the ECB, the IMF and Germany for
various cases – there will be no scarcity in finding cases that will be
certified – to be tried in the ECJ. The
ECJ is federalists as in there is not weights for justices given to Germany and
England and France and even Spain or Italy.
It will take and must take by the Treaties a pan-EZ view where every
country has the same weight. Europe
needs a balance of powers and an arbitrator for defining the following, the ECJ
muct be activated.

3) Greece must insist that a counterparty to the
ECB be defined and is the peer of the ECJ and the ECB – a pan-EZ “treasury”, a “Resolution
Trust Corporation “ (RTC) like structure that solves the imbalance debt crisis
with the same mandate as that granted the US savings and loan crisis RTC. It would be federalist and have a board that
is not super weighted as per GDP but federalist. And – most importantly – it would issue debt
that would be used to the Brady Bond like schemes. Just as Monnet’s European Coal and Steel
later became the EU, this RTC would become the Department of Treasury for the
emerging EZ federal republic.

4) Greece should refuse to negotiate at all until the
above is created, but then once the above is created to recognize their
authority and accept their dictum. This surrender of Greece sovereign power to
the Euro RTC would be precedent then to show the power of the EZ federal institutions. This corporatist and trade bloc power
structure of the currently confederate
union must be broken. Those institutions
which support the maintain of this power – most importantly the Karlsruhe, mist
be subsumed in trans-EZ matters to the ECJ and the Euro RTC.

5) An “edge” must be created. A trans-Europe anti-austerity directorate
must be well funded and then set loose across Europe. If Germany does not back down if the above
are not forthcoming, French taxi drivers protesting against Uber will be made
to look like light weights. A “résistance”
must be created.

6) I think all the above are not only required, but
can be accomplished with Greek leadership.
Greece must do all the above. I
think the majority of Europe, those who would be the direct representational
voters if they were allowed democracy,
are behind Greece.

7) To allow all this to take place in the end , the USA must get off of Europe's back. The USA must risk the emergence of a hard power country, the republic of the EZ - already every bit the match in aggregate to the USA economic power. The USA must evacuate Europe and end the post WW II occupation.

Saturday, June 20, 2015

“But
Europe is solid with herself. France, Germany, Italy, Austria and Holland,
Russia and Roumania and Poland, throb together, and their structure and
civilization are essentially one. They flourished together, they have rocked
together in a war, which we, in spite of our enormous contributions and
sacrifices (like though in a less degree than America), economically stood outside
and they may fall together. In this lies the destructive significance of the
Peace of Paris. If the European Civil War is to end with France and Italy
abusing their momentary victorious power to destroy Germany and Austria-Hungary
now prostrate, they invite their own destruction also, being so deeply and
inextricably intertwined with their victims by hidden psychic and economic bonds.”

Lord
Keynes Economic Consequences of the
Peace

1919

Over the last 95 years since Lord Keynes
wrote these words, perhaps the most prophetic analysis every provided in world
history, and where after the carnage of World War I of approximately 22 million
which almost brought world communism into power and did so in Russia, the
European area went on to suffer another 25 million to 35 million dead out of
world death of 70 million to 85 million from World War II. Keynes was Biblical in his prophesy. And all this took place for one reason which
Keynes also nailed, a reason that is still putting Europe at great risk and
which for what can only be mendacious, desire for personal gain, trite power
and obscene national “gloire” reasons, that continues to rot and fester in
Europe. This is the framing for what
Keynes called the “European Civil War”.
To Keynes Europe had already long become one country, one sovereignty –
a Europe that is “solid with herself”.
That is still the reality and the main issue underlying the current
Greek crisis and the entire chronic sovereign debt crisis of Europe. Whether Germany wishes to recognize it or
not, they are “solid” with Greece, with Spain, with all of Europe. They are one country. And now the shoe is on the other foot and
Germany with fellow political moralist countries like Finland and the
Netherlands “invite their own destruction also, being so deeply and
inextricably intertwined with their victims by hidden psychic and economic bonds.”
What fate that awaits Greece, then no doubt Spain and then Italy, and then the
next victim of the ”spoils of trade” predatory Maastricht Treaty with the
financial Ebola transmission device called the Euro, will be in the end Germany
and their claque’s fate.

The Greek crisis is not financial, it has
nothing to do with Greek spendthrift and scofflaw ways, nor does it have
anything to do with low savings rate or tax avoidance, the crisis is only about
how the answer to Keynes’s observation, the cure to the ongoing European Civil
War was waylaid and sidelined by only a few.
There is no doubt that there are many tax criminals, scofflaws and
corruption, but it all has little is anything to do with the current
crisis. The Greek crisis is a European wide
crisis and will always be so whether or not the flippantly named “Grexit” takes
place or not. The Greek crisis has
always been a constitutional crisis and the conditions that are behind it have
been so ever since Bismarck left Paris with Alsace Lorraine for Germany,
ignoring the Keynes reality that the nation state in Europe had already an
anachronism given economic binding long in place. It has been so ever since
that terrible error made by Beethoven in his 3rd , dedicated to
Napoleon.

Constantly frustrated with the ego and
singular French centric view of aptly named De Gaulle in the midst of World War
II, the USA started to rely upon another Frenchman, Jean Monnet. It was clear that De Gaulle was to strive to
move Europe back to the ways of old, ignoring the realities of Keynes’s “Europe
solid with herself.” He meant every word
when he would cite: “France cannot be France without greatness.” Jean Monnet was very much French, but he was
a person of deep international experience, took great lessons from WW I and
noted how WW II was a repeat again of all that brought WW I. That the disease of Europe was the fanatical delusion
of promoting and organizing the people under the Westphalian nation state which
had long died, drowned in tidal waves of gore and blood and misery. He was a pragmatist, having conducted
business with as a mundane role in the
Canadian Hudson Bay Company to massively important role in effectively joining
the FDR war cabinet and creating the concept of the USA ‘arsenal for democracy”. But unlike others, Monnet was a realist, a pragmatist and
who had lost all interest in the French
concept of “greatness”. He was attached
to the French government in exile in Algiers, no doubt to contain and impede De
Gaulle as being FDR and Churchill’s “man”.
De Gaulle grew to detest him. In Algiers before the war end Monnet
started to lay down his philosophy for the “United States of Europe”:

"There will be no peace in Europe, if the states are
reconstituted on the basis of national sovereignty... The countries of Europe
are too small to guarantee their peoples the necessary prosperity and social
development. The European states must constitute themselves into a
federation..." 1943

Monnet had had enough of the European
Civil War and began to frame the solution, a solution as valid and necessary
now as it has been since 1870. After the war he went to France and quickly found himself with no job
in the new French government, though he stayed close to Robert Schuman, the French
Foreign Minister. Monnet often used
Schuman as the front for many of his schemes and devices below. But he did find much to do with the occupying
Americans and quickly became one of the authors of the Marshal Plan, and then
more importantly one of those who decided how the American money from the plan was applied. This gave him great power, especially in Germany. He continued to write his plan for Europe, making what was one of
the world’s first “think tanks” building a staff who dealt almost exclusively
with the concept of a “United States of Europe”. And since he had great power with his placement
with the Americans he had great clout, and, in fact, his ideas started to make
great sense to the neo-liberals and especially those salvaging Germany.

“Through the consolidation of basic
production and the institution of a new High Authority, whose decisions will
bind France, Germany and the other countries that join, this proposal
represents the first concrete step towards a European
federation, imperative for the preservation of peace.”

Jean
Monnet (Speech Schuman gave)

1950

“Continue,
continue, there is no future for the people of Europe other than in union.”

Jean
Monnet (circa 1955)

The first
step in the Monnet Plan formed cross
border authorities that weakened the nation state as they assumed “high authority”
in critical areas. Series of
institutions were formed that answered large trans-Europe problems and
challenges. The European Coal and Steel
Community, the European Atomic Energy Community and many others were launched. Monnet was crafty – he made certain those
that ran these “communities” were European in focus, not nationalists, and
their management and governance was over wrought and larger than mere
industrial authorities, but were in every way the template for a
government. Germany was eager to be
completely involved with these Monnet creations. The great European Konrad Andenauer, the founding father of modern day Germany,
immediately partnered with Monnet for the ECSC and all the Euro projects as it
would help redeem Germany, speed the rescue and rebuild of Germany.

This
concept of a United States of Europe became central for all German leaders that
followed Andenauer, especially Kohl (supposedly Merkel’s mentor but disowned by
Kohl after she turned her back on the unification of Europe.) until Shroeder. So when the Maastricht Treaty was signed, Kohl
felt it was certain this was the birth of the United States of Europe:

“European
Union marks a new, decisive step in the process of European integration that in
a few years will lead to the creation of what the founding fathers of modern
Europe dreamt of after the last war: a United States of Europe.”

Helmut Kohl

1992

And the Maastricht Treaty carried on until it was
certain the Euro Zone would be launched with the brave new Euro Dollar, with
the creation of a European Parliament, and an executive, of sorts, Monnet’s “Higher
Authority”, the European Commission with
a President, sitting to the side of the EP. But the European Council, composed of the
leaders of the nation states maintained supreme authority. Still it was thought surely a sovereign
Europe would emerge based on democracy and with the Treaty converted at a
suitable time into a constitution. A European
Central Bank was created as well as a European Court of Justice, a supreme
court for Europe. Even France was going along with Mitterrand adamantly pushing
Maastricht through a French referendum and gaining a “Yes” vote. Mitterrand
also freely used the term the “United States of Europe”.

But then, from 1992 onwards the entire idea of
the risk of a “European Civil War” requiring a “United States of Europe” seemed
to be erased, almost overnight, and rarely heard or discussed from 1992
onwards, after the passage of the Treaty, to this day.

And it is that this entire goal was scrubbed out,
or attempted to be scrubbed out, the USE, why there is a Greece crisis now.

Greece represents the fallacy and ruse that occurred
post 1992 by a rather small group of actors for very narrow even mendacious
reasons. That if there had been the
formation of the USE, if momentum had continued as all thought was towards an inevitable
conclusion pre-1992, we would not now be having a Greek crisis. Furthermore there would have been approximately
10% more GDP in Europe now, a 1.5 trillion dollars difference to today’s stagnation.

What happened?

German reunification.

German reunification with a massive subsidy to East Germans via
that unification in the exchange rate of one for one for pensions salaries and
two for one for loans, with a one for one cash conversions for small holdings
and only a one for two discounting for large holdings. The economic realities at the time suggest a ten
to one reality, if not greater. Then Germany
went on an immediate austerity for all aspects of society so as to welcome back
their long lost brothers and sisters.
Benefits were curtailed, hours of work via long extended summer
vacations, salaries went down or had very low if non-existent increases and productivity
while at first hit hard as the aged East German system came onboard, then
soared. Savings more than doubled and
Germany suddenly flipped from being the sclerotic sick man of Europe to being
the most vibrant and productive with the strongest balance sheet. In short German supported with mass buy in
and patriotic enthusiasm from all Germans did what the Troika is asking now of
Greece.

Then Germany entered the Euro at the conversion
rate of two DM to one Euro while it should have been one to one. Given the above and now masked by the common
currency, Germany immediately leaped to a dominant position for all of Europe. The German machine once again ripped through Europe,
only this time not with Panzer tanks, but with massively advantaged
intra-Europe trade position. The
vestiges of the cost to unify Germany were quickly covered, and then Germany
went on for German sake, able to accomplish in a only a few short years what
Napoleon failed at and what Hitler succeeded at first but required a 50% spend
of GDP on military forces to do so then of course failed.

With the USA assuring Germany – and all of Europe
– security, Germany was allowed to maintain only a token military force and
spending only ¼ of the amount of GDP that the USA spent on defense. The low saving rate countries with low
efficiencies faced with availability of high quality German product at about
50% of the cost prior to the Euro, quickly bought all the could from Germany,
all of it financed from German banks or
their own domestic banks who in turn borrowed effectively from Germany though
with the German institutions enjoying the “ring fencing” of TARGET2 payments,
moving their liabilities to the ECB facing the Central Bank of Greece.

From 1992 onwards, given the above, the mention
of “United States of Europe” was no more, the referendums that tried to replace
the Maastricht Treaty with a Constitution failed, and the German Constitutional
Court, Karlsruhe, slammed the door on encroaching federalism that might impede this
money machine Germany had become. German
went on to not only solidify their unification, but now the “austerity” the good
Germans imposed to allow for German unification – which by the way they asked and
received help to finance from the world – now went on given their position of
trade to create massive wealth for the German people which developed into a
hypocritical smugness if not a sense of entitled superiority of the Volk over
the rest of Europe. And with the Karlsruhe
“order” to prevent any transfer payments or direct assistance to those building
massive trade imbalances with Germany, the Maastricht Treaty arrangement locked
Europe into a confederacy.

With no transfer payments and limited internal
mobility – for example a Greek cannot just move to Germany to take advantages of the German advantages
without giving up their pensions and not being able to easily take advantage of
the German societal safety net or benefits, and with no drachma to change
exchange values with a DM so as to eliminate trade advantages via currency,
when the credit ran out Greece had to make remedy to those imbalances by seeking
assistance from the Troika and then by
adjusting to massive unemployment. While
this limited trade to Germany, Germans given their power now in the EZ without pause
flip the Euro down to 1.1 and replace the Southern Periphery with the USA and
others as trade targets and continue to build predatory trade surpluses. For Germany, life is great, but it is an
insular thoughtless and selfish view which has always caused the European Civil
War to carry on. Only the long time USA
occupation of Europe has prevented it all to be at this point drowning in blood.

But the forge of misery and the danger of 30% to
50% now chronic youth unemployment in the Periphery is starting to shift some
back to the pre-1992 thinking.

“If you
really want sound budgetary policies over the long term, you need a European
finance minister answerable to the European Parliament and with clear rights to
intervene vis-à-vis the Member States. The vagaries of the ratings agencies
cannot be a substitute!”

Viviane
Redding European Commission Vice President

2012

While Greece is in the forefront, they are really not the main player in this
crisis, though they are relevant. By
allowing the IMF into the house and using IMF funds to pay down German banks
and institutions, Greece has lost their power as no German institution gives a
fig as to what they now do – they can go hang and all Germany is doing is going
through the act in expressing concern.
The amount of Greek youth unemployed is still a mind boggling 60%, the
usual number required for revolutions in the past, but the amount is small at about 1.8 Million.

Spain though is a completely different
story. Spain never did deal with the
Troika and has adjusted not with IMF funds paying down German lenders, but with
dropping economic activity a walloping 16% GDP per capita and has youth unemployment
of 60% that numbers 8.5 Million
youth. Debt outstanding is a very large
250 billion or so, most still to German institutions while Greece has external debt
of about 150 billion, but almost all of that is now to the ECB and the IMF. If the Spanish status is added to Italy
status – Italy is almost identical to Spain in size of debt but has only 40%
youth unemployment and has only adjusted via GDP per capita by 12% contraction,
but the populace is bigger, so youth unemployed
in Italy is about 8 million.

The problem in Europe, the potential
landmine, is not Greece but Spain followed by Italy. If solidarity is found between Spanish and
Italian youth, Europe will go to insurrection and blood as 16 million youth are
justified to take action against what Germany is doing to them. An aside is Germany has expanded, still,
through the crisis by 2% GDP per capita, and youth unemployment has dropped
from 11.5% in 2009 to 7.2% in 2015.

“It is a debate,
ultimately, about two different visions of Spain. One side sees a country
struggling with economic and political problems, but problems that are fixable
within the system. Their opponents see a political and economic order so
profoundly flawed that it requires not more reform, but a new beginning. It is
a clash of visions that is likely to grow more intense in the run-up to a
general election next year. Four decades after Spain’s seemingly smooth
transition to democracy, the risk of political rupture is growing.”

Tobias
Buck, FT Dec 2012

Greece is not being thoughtful. Instead of appealing along financial and
technical lines, they should drop all discussions with the corporatists IMF and
the stumped ECB, and the silly overtures to Putin, and instead should organize
solidarity and formal unity with Podemos and then USEUR in Italy. Great effort should be expended upon this,
and the axis should be youth. If the
youth in Spain and Italy can be radicalized, and then added to Greek youth, the
current German confederacy harvester machine will fold. At that same time Syriza and Podemos should stop
ancient leftist clap-trap and reassume the mantle of Jean Monnet. Unity should be sought to the edge of evoking
civil strife and even occasional violence.
Greece, Spain and Italy – if those three countries’ youth have the good
sense to see how they are being viciously exploited – have the ability and
power to start back along the lines of the United States of Europe thesis. I would organize, if I were Syriza, a well-financed
and well provided, in terms of logistics, “March on Berlin” and seek at least 250,000
Greek, Italian, and Spanish Youth marching to Berlin on foot.

There has to be an “edge” to this
discussion for the Periphery – an aurora of violence and strife – for otherwise
the real problem, the political backing to the European and Greek crisis being
maintained cannot be ended until there are potentially large adverse
consequences for this backer if they carry on as they are to date.

That backer is the USA.

The USA is following a strategy to
deliberately maintain European weakness and to prevent their formation of the United
States of Europe. The 300 million plus
USE would, if formed, be the complete equal to the USA and the current
uni-polar hegemony of the USA would be lost and replaced with a bi-polar shared
hegemony. Russia and China are a
tactical problem for the USA, a serious tactical problem, but compared to the
USA they are small and weak. A USE
however would be a full equal.

A little less than 4 years ago I was
asked to present to the nation’s intelligence agency for a full day. Was an exciting and wonderful day and I was
asked to bring the best and brightest minds on Wall St to come along, which I
did. The topic was the Euro crisis. The staff we were talking to was seeking
either confirmation or debate over the one page memo they were to present to POTUS
the next day. They cheerfully stated
that the entire organization had only one client and the main job of the group
was to publish a two or three page memo every morning for the POTUS breakfast
reading. The group I brought had a
career highlight day as we were grilled in turn by several groups of the
smartest and most able minds I have ever met.
We went on and on, much of the conversation fixated on financial speak
and details – TARGET2, borrowing capability, IMF path of action and so on. But the reason my group was there was that I
had previously made the case that Europe was not a financial problem with nothing
to do with credit rating agencies or
debt or default, but was a constitutional crisis given the German led swing
away from the creation of the United States of Europe. This is why I was invited. We found that there was great interest in
financial and banking detail, but that the information presented was either to
just confirm their own information or to
tweak it as they learned of some new detail or nuance. When I presented the
constitutional and historical record to the crisis, that this was the complete
nature of the crisis, I was presenting something “new” which almost all given
their Georgetown or Harvard PHD in history or foreign affairs instantly started
to model around my rather naïve (ie not classically trained) view. I was well received and as the thesis was
debated either there was immediate agreement or developed agreement that the
reason for the crisis was only constitutional. There was agreement.

But then all focus went to a surprising
thought, or question. What was the
potential for revolution, insurrection and civil strife in Spain? I admitted I had not even begun to consider
that, assuming the USA and Europe had no interest in the crisis becoming
bloody. All in their group kept coming back to Spain.
Ireland was dismissed as the nature of their problem was not related to
German aggression, but their own home brewed property bubble similar to the USA
housing crisis. Greece was considered a
problem and the headline catalysts but too small to be a major problem for this
group. But Spain was the main focus.

I raised Mike Pettis’s excellent work on
identities and adjustment - to a person, they all knew his work well and agreed.

So why has the USA not taken action, if
the powers in DC agree completely with what I say above?

EU
military spend is about $ 192
billion per annum, While the USA budget is about $ 500 billion per year. The US can deploy 500,000 troops quickly and 100,000
immediately anywhere in the world. Currently the USA has about 80,000 troops
deployed of which 55,000 are in Europe. The
USA has 1.2 MM troops in reserve and active duty. Europe can deploy 110,000 troops now but
would be months before they take the field and has reportedly 1.5MM troops in
reserve and active duty. The USA Naval
power is well in excess of 3 million tonnage in ships while the combined EU naval tonnage
is around 1 million tons, most of that service or coastal support ships and
coastal defense. Europe spends
about 1.5% of aggregate GDP on defense
while the USA spends now about 4%, and more importantly can surge to 6% plus
near immediate. It is this low required military
spend that is the source of all of Germany’s power in Europe. Then when they frame Europe in a confederacy
carefully avoiding the defensive needs of a federation with shared borders and
shared defense, Germany is able to establish hegemony over all of Europe.

The USA does not want a Europe that is
spending 4% to 6% for defense, it wants a Europe kept feeble and dependent on American NATO hard power contribution for
their common defense. They want Russian
subs playing with the Danes, Norwegians and Swedish navies, mocking them. They want the Russian excursion into Ukraine
(to a point). Why?
With the fall of the USSR and the unification of Germany they do not
want to see a United States of Europe with a core capable Germany. The USA,
while creating the Monnet plan, have done a 180 on that plan and are now
dedicated to keeping Europe feeble, not united, and not a hard power factor.

That is why I heard all those questions
on the stability of Spain during that visit in DC. Why the focus on Spain. For only if insurrection starts in Spain and
Italy does so as well will the USA have to rethink their strategy to maintain a
Greek like crisis always on the back burner of Europe.

Tsipras opposition is not the IMF or Germany
and he is foolish to see Russia as offering any solace. Greece’s opposition is the USA and the only
way he can return the dialogue to the constitutional defining crisis it truly
is, has always been, is to gain power
via unity with Spain and Italy – likely via radicalized youth – and presenting
the likelihood of great civil strife, of blood, to both Germany as well as –
more importantly – the USA.

This focus on IMF and deals and negotiations
along financial themes and lines is a ruse – Tsipras must take to the street, to
the now 30 million disenfranchised Peripheral youth. Now is the time for Syriza to start to hire
100 to 200 youth organizers from Italy and Spain, seek common front with
Podemos, and strike - moving this discussion from the economic to the
constitutional problem that it truly always was.

What is baffling is how the moderate
right in Germany, France and other countries have not come to this
realization. The “European Civil War” is
still very much with us now.

Followers

About Me

Many years of experience in being a market maker, a trader, a salesguy or portfolio manager in almost all asset classes known. Have had a high teens average career return and yet can say that I have lost more money in more asset classes than anyone I know.
My biggest curse is that not even wishing to become involved: "I see dead people.", as the kid said in the movie. I can smell a trade in the drawer or financial fraud or PL blowup miles away. Should have been with the FBI if wanted to max social utility.
Autodidact in all things math, formal education in history.